Macroeconomic Equilibrium

Question 1

what happens when the macro economy is completely in equilibrium

Answer 1

sum of output = sum of income = sum of expenditure
the entire income is spent and all output consumed and there is no tendency for income level to change because the macroeconomic system is balanced

Question 2

FINANCIAL SECTOR: when is this financial sector in equilibirum

Answer 2

Savings = Investment (S=I)

when leakage from financial sector matches injection into financial sector

Question 3

FINANCIAL SECTOR: when is this financial sector in disequilibirum

Answer 3

savings does not equal investment

Question 4

FINANCIAL SECTOR: why is disequilibrium the normal state for the financial sector

Answer 4

households savings decisions naturally wont exactly match the investment plans of firms because the influences are different and independent

Question 5

FINANCIAL SECTOR: what causes savings to exceed investment (disquilibrium)

Answer 5

flow of income in eocnomy must contract because leakage > injection
total spending will be less than output so inventory increases

Question 6

FINANCIAL SECTOR: what are the effects of savings exceeding investment (disquilibrium)

Answer 6

firms will cut production and reduce resources they employ, households will therefore recieve less income (consumption/savings falls)

Question 7

FINANCIAL SECTOR: what is a solution to savings to exceeding investment (disquilibrium)

Answer 7

savings has to equal investment at a lower level of income

it will fall until S = I

Question 8

FINANCIAL SECTOR: what causes investment to exceed savings (disquilibrium)

Answer 8

an increase in the flow of income

total expenditure will exceed output causing inventory to decrease

Question 9

FINANCIAL SECTOR: what are the effects of investment exceeding savings (disquilibrium)

Answer 9

firms will react by increasing production and employing more to increase income paid to households

Question 10

FINANCIAL SECTOR: what is a solution to investment exceeding savings (disquilibrium)

Answer 10

when S = I it will be stable

Question 11

GOVERNMENT SECTOR: When is it at equilibrium

Answer 11

tax level = gov spending (T = G)

Question 12

GOVERNMENT SECTOR: explain when Tax exceeds government spending

Answer 12

money amount leaked from flow exceeds expenditure injection

the income level will be expected to fall

Question 13

GOVERNMENT SECTOR: explain when government spending exceeds tax

Answer 13

the level of income will be expected to rise

Question 14

OVERSEAS SECTOR: when is it at equilibrium

Answer 14

import spenidng = export revenue (M = X)

Question 15

OVERSEAS SECTOR: explain when imports exceeds exports

Answer 15

amount of money withdrawn from circular flow exceeds funds injected so level of income can be expected to fall

Question 16

OVERSEAS SECTOR: explain when exports exceeds imports

Answer 16

injections increase size of the real and money flows

income can be expected to rise

Question 17

FULL CIRCULAR FLOW: when is the full circular flow at equilibrium

Answer 17

S + T + M = I + G + X

sum of leakages (stm) = sum of injections (igx)

Question 18

FULL CIRCULAR FLOW: what happens when leakages exceed injections (S + T + M > I + G + X)

Answer 18

producer ouptut and hosuehold income will fall

Question 19

FULL CIRCULAR FLOW: what happens when injections exceed leakages (S + T + M < I + G + X)

Answer 19

household income and producer output will rise